I am the retired co-founder of Dimensional Fund Advisors. A committed Missouri philanthropist, I serve as president of the Show Me Institute, a state think-tank for limited government, and am president and chairman of the Chess Club and Scholastic Center of Saint Louis. To learn more, please visit my website at www.rexsinquefield.org.

States Push Back Against Obama's Knee Jerk Tax-Increase Addiction

Map of USA highlighting states with no income tax on wages (Photo credit: Wikipedia)

In the wake of the U.S. economy realizing its most significant decline since 2009 (an annualized decline of 0.1 percent during the 4th quarter of 2012), this week President Obama laid out his plan to kick the “sequester can” even further down the road. His renewed call for tax increases, along with limited spending cuts, is a prime example of what President Ronald Reagan was referring to when he claimed, “Some people have labored so long at making government bigger that they’ve developed a knee-jerk addiction to tax increases. Every time their knee jerks, we get kicked.”

The federal government’s seemingly insatiable appetite for out-of-control spending affects far more than jut the wealthy. In fact, Washington’s tax-and-spend tendencies will impact more than three-quarters of American households this year. Many American workers were caught off-guard in January, when they saw their annual take-home pay shrink by hundreds of dollars due to a broad-based increase in payroll taxes.

In 2013, the employee tax rate for Social Security increased to 6.2% (an increase of 2 percentage points), and the Social Security wage base limit increased to $113,700 from $110,100. Now, a single person earning $38,000 a year will pay $760 more this year. Workers earning $90,000 will pay nearly $1,800 more than last year. Those with incomes of $185,000 will pay $2,274 more in 2013.

In addition to the “fiscal cliff” deal that the President signed into law last month which raised taxes on high wage earners, couples who make more than $250,000 will face a new 3.8 percent tax on their investment income passed as part of ObamaCare in 2010. In effect investment income taxes will rise from 15% to 23.8% for those making over $400,000. But wait, there’s more! High wage earners, those who make $400,000 plus, will also see their income taxes rise from 35% to 39.6%. Add in state and local income taxes and many families will find themselves paying over 50%.

Our federal government’s “knee-jerk” dependence on tapping into workers’ earnings at nearly every income level is causing several states to kick back in very Reagan-esque ways.

Discussing her tax-cut proposal, Oklahoma Governor Mary Fallin said the reduction in personal income tax will help offset the loss residents saw with the rise in the federal payroll tax. Oklahoma’s House of Representatives will be considering a bill that will reduce the income tax rate by .25 percent, to 5 percent.

Louisiana Governor Bobby Jindal is proposing that his state phase out both personal and corporate state income taxes. Such a move would make Louisiana more competitive with its neighbor to the west – Texas, a no-income-tax state which attracts thousands of residents and millions of dollars each year.

Feeling the competitive advantages of pro-growth and tax reform policies being initiated by neighboring states Michigan, Ohio, and Wisconsin, Indiana Governor Mike Pence is proposing that his state’s FY 2014-15 budget include measures for cutting income taxes for every worker by 10 percent and keeping state spending below the rate of inflation.

In my own home state of Missouri, legislators are proposing a reduction in personal income taxes in response to our neighboring state of Kansas’ new pro-growth tax policies, in an all-out effort to keep workers and businesses from simply walking across the state line.

Without a doubt, there is a grand experiment in economic policy taking shape across the country that could lead to a significant increase in the number of low to no-income tax states. At the center of it all is a fierce competition for today’s workers and employers. The battle is not for those who lack the courage of their convictions. The policy that determines the winners and losers will define state economic policies of tomorrow and ultimately could have a dramatic effect on national policy. Congress and the President would do well to look outside the Beltway at the tax revolutions taking place in the states.

Our nation’s future prosperity will result from the economic stability of American workers – not from damaging, ineffective tax-and-spend policies.

Post Your Comment

Post Your Reply

Forbes writers have the ability to call out member comments they find particularly interesting. Called-out comments are highlighted across the Forbes network. You'll be notified if your comment is called out.